The Nifty Realty and the S&P BSE Realty indices have gained more than 90% thus far in the calendar year 2017 (CY17), and is set to post their sharpest rally in the past one decade, on the back of
an improvement in affordability, and multiple developments on the policy initiatives front.

Putting behind demonetisation announced by the government in November 2016, the Nifty Realty index and the S&P BSE Realty zoomed 97% and 94%, respectively, so far in CY17. Both these indices hit their multi-year highs, and are set to record their biggest yearly gain since inspection.

By comparison, Nifty 50 and the S&P BSE Sensex are up 26% each thus far in CY17.The value of the realty indices is available from the calendar year 2007 with the stock exchanges.

Between November 8, and December 30, 2016, the BSE realty index was down 17% after the Government announced the demonetisation of all Rs 500 and Rs 1,000 banknotes. In entire previous CY16, it fell 6% against 2% rise in the benchmark index. Earlier in CY09, the realty indices had rallied 70% after falling 82% in CY08, post Lehman crises.

Date

BSE Realty

% chg

Nifty Realty

% chg

31/12/2017

12727.4

-

31/12/2008

2274.1

-82.1

285.96

-

31/12/2009

3855.8

69.5

489.07

71.0

31/12/2010

2856.2

-25.9

379.95

-22.3

31/12/2011

1375.7

-51.8

184.2

-51.5

31/12/2012

2110.8

53.4

281.3

52.7

31/12/2013

1433.4

-32.1

184.6

-34.4

31/12/2014

1555.1

8.5

203.1

10.0

31/12/2015

1344.3

-13.6

172.6

-15.0

31/12/2016

1263.9

-6.0

165.35

-4.2

29/11/2017

2445.8

93.5

325.3

96.7

*% change over previous year

The outperformance in CY17 comes amid multiple developments on the policy initiatives front - from the implementation of Real Estate (Regulation and Development) Act, 2016 (RERA) that came into force with effect from May 1, 2017 - to amendments in Real Estate Investment Trust (REIT) regulations and Infrastructure Investment Trusts (InvITs).

The government has recently increased the area of a unit on which a first time buyer can avail benefits under the Credit Link Subsidy Scheme (CLSS) scheme of the Pradhan Mantri Awas Yojna (PMAY).

Notwithstanding the current slow pace of activities in the housing/real estate market, feedback from developers, lenders and government officials indicates that the turnaround is not far away, according to CLSA.

“The Government is committed towards its ‘Housing for all’ program, which implies a large jump in Government spends going forward. We believe, however, the real driver is improvement in affordability. Developers highlighted that land prices have been correcting and end-product price cuts have helped demand. Housing market upturn is likely to be visible during 1HCY18 and would be one of the most attractive multi-year investment themes in India,” the foreign brokerage said in latest report on market outlook.

Fitch Ratings expects improving macroeconomic conditions and better consumer sentiment in some south and south-east Asian markets to increase business activity and lead to more robust demand for property.

India's consumer spending to expand at a faster pace of 9.1% in FY18-19 (FY17-18: 8%). Improvement in the macroeconomic environment and a decline in interest rates may boost demand for property, the rating agency said in sector 2018 outlook.

Fitch Ratings expect unsold inventory to fall in 2018 as most developers will focus on completing their property projects to comply with RERA. Unsold inventory for a sample of seven large developers rose to Rs 668 billion at FYE17, from Rs 631 billion at FYE16. This translates to an inventory turnover of around three years of annual revenue at FYE17, up from around two years at FYE16.